Didn’t your Dad once tell you, “It’s all fun and games ‘till someone gets hurt!”?

What if the one who gets hurt is the one with all the fun and games?

And what’s more harmful – the games or the fun?

What about “All work and no play makes Jack a dull boy?” or the old adage “Too much of a good thing.”?

Whatever shop-worn phrase is your platitude of choice, (and therefore reflects your perspective on work/life balance), there is (unfortunately) one, undeniable consequence when it comes to fun, games, and Gameworks. That old, stand-by for fun is going “bye bye” forever.

All lovers of fun slowly shake their heads in the silence caused by the vacuum of space once occupied by games galore.

For those prepared to do so, let’s examine how we got here, and how other such businesses can choose not to follow suit.

History

Though Gameworks feels like it’s been around forever, it hasn’t. It only started back in 1997 and it had some big money behind it. Video game company Sega joined with Universal Studios and DreamWorks to open the first one. It had some big guns involved – including Mr. Hollywood himself,  Steven Spielberg!

With such ambitions, Gameworks should have been a massive success, but massive, it was not. At one point, most major metropolitan areas in the US had one, along with some international locations. Unfortunately, it never turned into the McDonalds of huge gaming institutions, nor did it ever look like it would do so, considering it hit rocky waters early in its life.

Bankruptcies

Gameworks filed its first bankruptcy in 2004.

That’s right! The first was in 2004 – only 7 years after it began business.

So how is this possible, and how is there even a Gameworks to go out of business all these years later?

Well… it gets worse. They filed for bankruptcy again in 2010. That’s only 6 years later. Throughout all this turmoil they were also bought and sold multiple times. Sometimes it was part of the bankruptcy itself, other times it was for business purposes. Either way, that can’t be good for business, can it?

What is going on here? Shouldn’t they have closed after the first bankruptcy or at least the second bankruptcy? How does this work?

We have to assume that one of the issues Gameworks faced was expanding too quickly. They started off with a bang, being backed by big corporations and celebrity talent. We can only guess that the driving force behind Gameworks felt as though they could dominate the market with a big and bold expansion right out of the gate.

Whatever the reasoning behind their seemingly auspicious beginnings, it obviously did not work according to plan. Rather than going into painstaking detail regarding how their overall strategy failed for two decades, let’s go back and answer our earlier question about how they were able to survive two bankruptcies and many different owners for so long before going out of business. The key lies in the nature of Chapter 11 bankruptcy, so let’s have a look.

The Chapter 11 Game

Bankruptcy attorneys get asked all the time questions like this:

“How is Donald Trump still rich after filing bankruptcy more than once?”

There are (of course) many variations of this question. Simply insert your rich person du jour.

Obviously, if lots of us are wondering, what’s the answer?

The answer lies in Chapter 11 bankruptcy. It’s not your garden-variety bankruptcy that your cousin, or your mom’s friend’s dog, or whoever you know filed years back. That’s probably a Chapter 7 bankruptcy you are thinking of. Chapter 7 is a straightforward personal bankruptcy where a case is filed with the court by an individual (or married couple) and most (if not all) of their unsecured debt is eliminated.

The problem for rich people (yes, they have problems too… just different ones),  is that they don’t qualify for bankruptcy for lots of reasons, one of which is that they have too much money to qualify for bankruptcy. Even if they could qualify for bankruptcy, they wouldn’t want to because they would lose all of the money that makes them so rich. The court would take it, pay off their creditors, and keep the rest.

This is where Chapter 11 bankruptcy kicks in. It’s the kind of bankruptcy that rich people who own corporations file. They aren’t even filing it themselves. Rather, it’s their business that is filing. So right from the get go they are already removed from the process. When you ask, “how did Trump file bankruptcy and still have money…?” you should be thinking not in terms of Trump the person filing for bankruptcy, but his business filing for bankruptcy. Maybe that will help you comprehend what’s happening a bit more. But if not, we can delve deeper.

It’s not only that the rich person is not personally filing for bankruptcy, but also the very nature of a Chapter 11 bankruptcy that also makes this scenario different. Chapter 7 that we discussed above is all about simply filling and eliminating debt, while Chapter 11 can be thought of as a business reorganization. The business isn’t just filing bankruptcy and eliminating all of its unsecured debt – it is reorganizing itself. In so doing, it isn’t eliminating all of it’s debt, though much of it may be wiped out. Also, it isn’t just “walking away” from the bankruptcy in the way that an individual who files for Chapter 7 would, because it will typically look quite different after the bankruptcy is over.

When a business undergoes Chapter 11 bankruptcy, lots of people get involved. There’s the bankruptcy court that is overseeing the whole thing, and there are attorneys working for all parties involved. This includes the creditors to whom the business owes money. With all those attorneys involved and interested parties, you would imagine that Chapter 11 bankruptcy gets quite complicated – and it does.

The attorneys for the company are usually trying to keep the business from closing its doors forever – which is a possible end-result of Chapter 11 bankruptcy. As part of the bankruptcy, the court may require parts of the business to be sold off or closed, typically as a tool to streamline the business and increase profitability. The attorneys representing the company will obviously fight to do what it thinks is right for the business.

The court itself is in the middle of it all, trying to have the business survive while still ensuring that the creditors aren’t overly harmed in the process. It’s a tricky business for the court, trying to keep all parties happy. In reality, all parties are at least a little disappointed in a Chapter 11 bankruptcy, because everyone has to take a loss. The court has to decide how bad it is for all involved.

That brings us to the other side of things – the creditors. They want to be paid for what they are owed, and can we blame them? Their attorneys are going to try hard to ensure that they get as much of their money back as possible. The court can’t give all creditors everything they are owed because there isn’t enough money to go around. If there was, the business probably wouldn’t have to file for Chapter 11 in the first place. So the court must balance giving the creditors what they are owed with allowing the business to survive the bankruptcy.

The final piece of the puzzle involves what happens to the business when it’s all over. Part of Chapter 11 usually involves the business being sold to a new owner. Sometimes it doesn’t survive filing Chapter 11 bankruptcy, because no one wants to buy the new and (hopefully) improved business at the close of the bankruptcy. This is pretty unusual, however, because most of the time when Chapter 11 is filed, a new owner takes over.

We can now see how Gameworks is able to file multiple bankruptcies and go through many ownership changes with closing up shop. Chapter 11 bankruptcy makes it possible not just for Gameworks, but for most businesses to file bankruptcy and continue operating.

Closing Up Shop

So why didn’t Gameworks just file another Chapter 11 bankruptcy?

The current ownership of Gameworks must have felt that there wasn’t enough gas left in the tank to continue. Sometimes, not even Chapter 11 can save a business. They were down to only a handful of stores before closing, so it’s likely it wasn’t worth the effort to try and keep the doors open. It’s one thing to patch a hole in a boat, while it’s another to try to save a sinking ship.